Main points of investment

Steady growth in business, new leasing criteria affect net profit

In 2021, Jinhe realized operating income of 909 million (YoY+22.9%) and net profit of 124 million (YoY-20.5%). Gross profit margin and return net profit margin are 39.3% (YoY+5.3pct) and 13.7% (YoY-7.5pct) respectively, of which the gross profit margin of leasing business is 44.1% (YoY+10.7pct), and that of property services and other businesses is 25.97% (YoY-9.7pct). Operating cash inflow 422 million (YoY+104.3%) benefited from the increase in rental rate recovered from the epidemic and the increase in rental area after mergers and acquisitions, and the company's revenue grew steadily. The increase in income and no increase in profit is mainly due to the non-retroactive adjustment of the comparability at the end of 2020 after the implementation of the new leasing criteria; if this effect is excluded, the company can achieve a net profit of 178 million (YoY+13.7%). In addition, due to the recognition of right-to-use assets and lease liabilities at both ends of the balance sheet under the new leasing criteria, the company's asset-liability ratio has increased to 76.66 per cent (YoY+48.3pct), and the company's actual interest-bearing liability remains zero.

Vigorously develop M & An and increase the scale of the project under management.

By the end of 2021, the company has a total of 70 projects under management, with an operating management area of 1.12 million yuan (YoY+27.3%).

Among them, the number of projects of leasing operation, entrusted operation and shareholding operation is 44, 23 and 3 respectively, and the available rentable area is 72, 28 and 120000 square meters respectively.

In addition to independent expansion, the company actively through mergers and acquisitions to expand projects. In 2021, the company acquired the project No. 8 Hengshan Road and Xiangde Road through external extension; completed five mergers and acquisitions in the whole year, and successively acquired 60% equity in Shanghai Tengjin, 100% equity in Shanghai Yichang and Shanghai Haoyi, 60% equity in Beijing Tongchang Science and Technology, 31.304% equity in Beijing City and 100% equity in Shanghai Fengjin. As revenue can be contributed after the M & A project is delivered, we expect the company's revenue to further increase in 2022.

Focusing on the core cities, the regional deep ploughing has obvious advantages.

The company's existing projects are concentrated in Shanghai and other first-and second-tier cities in China. According to subdivision, there are 60 projects in Shanghai, 7 projects in Beijing, 2 projects in Hangzhou and 1 project in Nanjing. In 2021, the company's revenues in Shanghai, Beijing and Hangzhou accounted for 82%, 10% and 7% of total revenue, respectively.

We believe that on the basis of the scale advantages accumulated by the company because of its early start, regional ploughing further enhances the competitiveness of the company's industry. On the one hand, the company's brand effect is enhanced, which is conducive to the expansion of new projects; on the other hand, the company's bargaining power to property owners, suppliers and customers is conducive to reducing operating costs.

Investment suggestion: the company has the advantages of early start, excellent location, scale advantage and regional deep ploughing advantage, and is a leading industrial park operator in China.

Taking into account the impact of the epidemic on the rental rate in 2022 and the possibility of rent reduction, we expect the company to achieve operating income of 1.1 billion, 1.36 billion and 1.7 billion from 2022 to 2024 (1.19 billion and 1.48 billion before 2022 and 2023), an increase of 21.0%, 23.5% and 25.3% over the same period last year, achieving a net profit of 150 million and 1.

800 million and 230 million (170 million and 220 million before 2022 and 2023), up 18.3%, 25.5% and 26.3% year-on-year. EBITDA can better reflect its true profit level, we use EV/EBITDA to value the company, the current market capitalization is 8 times the 2022 valuation, maintaining a "buy" rating.

Risk hints: repeated risk of epidemic situation, risk of sharp decline in rental rate caused by macroeconomic downturn, risk of breach of contract by property owner or lessor, risk of customer surrender or less than expected investment, and risk of untimely updating of information or data used in research and report.